California Businesses Embrace New Benefit Corporation Law
Ventura, Calif.–based Patagonia was the first of 12 companies to register for the state’s new “benefit corporation” status on Jan. 3. Patagonia founder Yvon Chouinard led a group of businesses to apply the first day the legislation came into effect.
California has become the seventh state to adopt a form of the new law, which was designed to protect companies that practice social responsibility. The other states are Hawaii, Virginia, Maryland, Vermont, New Jersey and New York.
Currently, the law requires corporations to favor the financial interests of shareholders over the interests of communities, the environment or other social causes. Before the introduction of the benefit corporation law, companies had to choose between becoming a nonprofit or leaving themselves vulnerable to lawsuits for not obtaining maximum profits.
AB361, which was authored by Assemblyman Jared Huffman (D–San Rafael), creates a new kind of corporation that has legal protection to serve the public, not just the shareholders, so long as the company “shall have the purpose of creating general public benefit” and is bound to prioritize the interests of the community, the environment and workers.
The company must also publicly report annually on its overall social and environmental performance using a credible and independent third-party standard.
“Patagonia—a company with a mission statement that includes building the best product, causing the least amount of harm, and using business to inspire and implement solutions to the environmental crisis—views the benefit corporation as a way for its founders to ensure the established values of Patagonia continue in perpetuity,” said Jen Rapp, director of communications at Patagonia. “The legal status affords a company’s directors legal cover to consider environmental and social benefits over financial returns.”
Berwyn, Penn.–based nonprofit B Lab had been pushing for adoption of the bill in partnership with many businesses and business associations, touting the message “A new economy requires a new kind of corporation.”
“We need a better way to do business,” Jay Coen Gilbert, co-founder of B Lab, said. “Benefit corporation legislation gives businesses the freedom and the legal protection to make decisions that create value for society, not just shareholders. That’s important for workers, for communities and for the environment. Success in the future will be defined by those companies that create high-quality jobs and improve the quality of life in communities and for future generations. Benefit corporation legislation makes this possible.”
Some of the other California companies that have applied for benefit corporation status include online streetwear store DopeHut, Dharma Merchant Services and ThinkShift Communications, all based in San Francisco.—Deidre Crawford
